Hot wallet vs Cold wallet – what’s the difference?
The world of cryptocurrency can be overwhelming for newcomers, with a seemingly endless array of terminology and technical jargon.
But that’s why we’re here.
One of the most commonly used terms is “hot” and “cold” wallets, which refer to different types of storage for digital assets.
Understanding the difference between these two types of wallets can be critical to safeguarding your cryptocurrency holdings, and ultimately protecting your future.
What Is a Hot Wallet?
A hot wallet is a digital crypto wallet that is connected to the internet in order to be used for making constant, frequent transactions. It has the name ‘hot wallet’, because it is always ‘warmed up’ and ready to be used without having to take the time to insert your private keys, like with a cold wallet.
Hot wallets are generally more convenient than cold wallets, especially for beginners, because they allow quick and easy access to funds through an exchange. However, they also present a greater risk of theft or hacking since they are connected to the internet.
Cold Wallets
On the other hand, a cold wallet is a type of crypto wallet that is not connected to the internet and is more often used to store large amounts of cryptocurrency with the goal of long-term holding.
Unlike hot wallets, cold wallets are not typically used for regular transactions and are generally less convenient to access and use. However, they offer a coveted level of security because they are not connected to the internet.
The main problem with cold wallets lies in the fact that one is unable to use them for daily transactions, such as those that a business requires. This is because the transaction process is much slower than if you were to hold funds in a hot wallet.
For example, when using a hot business wallet like that on offer by CryptoProcessing.com, crypto transactions are settled immediately and the platform gives you many options on how you want to convert and withdraw your funds.
Types of Hot Wallets
When it comes to how hot wallets work, there are several different types to choose from, including web-based wallets, mobile wallets, and desktop wallets.
Each type has its own set of advantages and disadvantages, but choosing the right one is of course dependent on each individual’s needs and level of familiarity.
Web-based wallets are convenient and easy to use, but they rely on a third-party service to store your private keys for you. This means that if the service is hacked, you could lose all of your cryptocurrency.
Mobile wallets are similar to web-based wallets but are designed for use on a smartphone. Desktop wallets, on the other hand, are installed on your computer and provide a more secure way to store your cryptocurrency.
One of the biggest advantages of hot wallets is that they almost always come with chat support, because they are managed by a crypto payment gateway or an exchange.
This makes things very easy for you as the user, because questions can be immediately answered and any problems resolved.
Types of Cold Wallets
When it comes to cold wallets, there are two main types you need to be aware of: hardware wallets and paper wallets. Hardware wallets however, are much more popular since they are physical devices that store your private keys offline, making them one of the most secure ways to store cryptocurrency.
Sometimes users prefer these devices, because they like the physical feel of holding their wallet instead of software use.
Paper wallets, on the other hand, involve printing out your private key and storing them in a secure location, such as a safe. While this method is highly secure, it can be more difficult than other types of wallets. This method has also become extremely rare.
Summary
As someone who is new to the world of cryptocurrency, you can easily become overwhelmed by the different types of wallets available.
It is often recommended for beginners, active users, and businesses to take advantage of hot wallets, while only long-term, inactive holders should hold most of their crypto in cold wallets.
After considering your options it all comes down to your priorities and what you’re already comfortable using.
No matter which type of wallet you choose, it’s important to do your research and choose a reputable provider to ensure the security of your cryptocurrency holdings.